NEW YORK (MarketWatch) — Argentine stock and bond prices sank Thursday after the South American nation missed the deadline for a debt payment.

Argentina’s Merval stock index
MERV, -1.10%
fell 8.4%. A day earlier, the index had rallied nearly 7% on hopes that the nation would reach a deal with a group of holdout creditors, who have been locked in a years-long legal battle. The index is up 52% so far this year.

The Global X FTSE Argentina 20 ETF
ARGT, -1.08%
which tracks the performance of 20 large companies linked to Argentina’s economy, fell 4.1%. The ETF is still up 14% in the year to date.

Among American Depositary Receipts issued by Argentine companies, oil and gas company YPF SA
YPF, -1.29%
was the most active, falling 9.1% at $35.38. A total of 6.8 million shares changed hands, compared with a daily average of about 3 million.

Argentina had been scrambling to reach a last-minute deal that would avert a default before a Wednesday deadline for payment. The move follows a court ruling that the South American nation is not allowed to pay its exchange bondholders unless it also pays a group of creditors that has disputed its treatment during Argentina’s last default.

Prices on Argentine bonds that had been exchanged as part of an earlier restructuring traded at 91 cents on the dollar in the morning, down from 95 cents, which implied a yield of roughly 7.3%. The differential between bids and asks widened, indicating some nervousness among bond market participants, according to Stuart Culverhouse, global head of research at Exotix Partners LLP.

“Much depends on what Argentina now says,” said Culverhouse. “You could have a short-lived period of default, but a path to regularizing the situation.”

The tentative decline in bond prices reflects hope for a speedy solution, he said. Yet a prolonged period with no solution in hand could take a broader toll on Argentine securities, and Argentina.

“We will see a loss of GDP loss of at least 1%, if not 2%, due to this inability to not only transact with the international market, but also raise capital,” said Saxo Bank chief economist Steen Jakobsen in video commentary.

Here are the key developments in the story, which continues to evolve:

Bank of New York Mellon, a trustee on a portion of the unpaid bonds, said Thursday it continued to hold the money designated for bondholders, but would not make payments until further directed by U.S. courts.

Argentina Cabinet Chief Jorge Capitanich said the bonds are not in default because the government handed the required payments to the trustee on time.

The International Swaps & Derivatives Association said it will rule on whether a credit event occurred for matters related to credit default swaps, according to the group’s website. If such an event is deemed to have occurred, holders of the swaps would receive a payout. The review comes at the request of UBS. The committee will meet on Friday.

J.P. Morgan was said to be among banks that were in discussions to buy up the bonds of holdout creditors, The Wall Street Journal reported, citing anonymous sources familiar with the matter. Aurelius Capital Management LP, on of the creditors, played down those reports.

Argentina has said it may take its dispute to international governing groups, such as the International Court of Justice in The Hague, according to The Journal.

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